You Have Nothing to Lose But Your Cash

The Better Than Cash Alliance announced its existence last week. The vibe I get from the website is of an organization that doesn't lack for resources, but has yet to develop identity, culture, and confidence. It is a partnership of the Gates and Ford foundations, the Omidyar Network (Pierre Omidyar being the creator of eBay), USAID, Citi, Visa, and the U.N. Capital Development Fund, which I assume means they're the funders (except that UNCDF is the "secretariat," meaning it's administering the thing).The organization's mission is at once grand and arcane: to create a global movement for the adoption of electronic money, and to engage in such exciting activities as "technical and financial assistance to identify and implement the most effective approach for local market conditions that maximize the benefits at each stage of the transition" and "developing cutting-edge research products, best practices and case studies." I say that a bit tongue in cheek only to convey the irony I feel in the perusing the website. Electronic payments systems, unlike microcredit, can't just be parachuted in by outsiders. They are run and regulated by powerful institutions such as governments and mobile phone companies. So if you're convinced that accelerating the shift to e-money is a good way to help the poor---and there's much to be said for that view---then your job is twofold: to get others to buy your vision and to support them in realizing it, through such unglamorous outputs as best-practice reports, trainings, conferences, and high-level meetings.It is probably no coincidence that in July the Gates Foundation's Financial Services for the Poor program refocused on digital platforms.The Alliance's launch report was written by Bankable Frontier Associates. (I think I hear the voice of David Porteous in it.) Rather carefully, it describes the benefits of electronic money and the typical stages of transition to it. My only quibble with the survey of evidence is that the suggestions of a link from e-money penetration to economic growth seem too strong.The publicity materials are another matter. There, we see that familiar desire, presumably on the part of professional communicators brought in for the launch, to turn a helpful tool for the poor into a cure for being poor. Quoth the press release: "New Report says Electronic Payments can lift Millions out of Poverty." "UN, NGOs and Corporations Declare Cash a Tyrant," ran the subject line of the media briefing announcement. That inspired my illustration at right. See, Gates and Ford, Visa and Citi, are going to smash the dominant financial system. Appropriately, it reminds me of the commercial in which a powerful executive revels in how his new Sprint mobile phone calling plan lets him stick it to the man. His assistant points out that he is the man.I guess if someone exhorts you join a revolution because you have nothing to lose but your cash, then you better watch your wallet...Enough fun with that. I think the question a lot of people will ask about this new movement in financial services for the poor is whether it is flawed in the same ways that the older one is, or is accused of being. Is it over-promising? Does it really help the poor? Might it hurt them? Might it succeed in helping the rich (like Citi) more than the poor? I'm not that worried. A few goofy quotes aside, Better Than Cash is largely not overpromising. Indeed the materials are generally quite evidence-based; footnotes to good research and case studies abound. Nor is the Alliance asking philanthropists or government donors to plow millions into its projects. The expenditures it calls for are modest; a low cost needs only a low benefit, not lifting people out of poverty, for justification.I believe that digital money is a fundamentally good thing because of the way it allows poor consumers to hold giant organizations such as mobile phone companies accountable for good service. To use an overused word, it empowers the poor. The central design challenge in traditional microcredit is efficiently holding clients accountable for their commitments to repay. Joint liability, the threat of public embarrassment, and the loss of future access to loans are all means to this end. I saw in Kenya how phones reverse the roles. SMS messages allow clients to prove that they deposited money or ordered a transfer and thereby hold Safaricom accountable for keeping deposits safe or passing them to intended recipients. In this respect, it helps that Safaricom is a giant corporation, the farthest thing from fly-by-night. Absent the digital layer, the M-PESA mobile money system would quickly disintegrate into theft and graft. (Not that Safaricom's power is all for the good: I worry that for lack of competition, it is overcharging.)Still, I worry about the top-down flavor of the Better Than Cash Alliance. One strength of the microfinance movement is that it built up from small-scale successes (successful in the business sense of high repayment rates). The e-money movement is also animated by examples of success---indeed ones far larger than anything microfinance achieved in its early years. Yet the Better Than Cash Alliance vision seems to go beyond what has been shown to work. It involves the arrival of a "cash lite" world in which digital systems do not merely serve as a wrapper for the business of moving old-fashioned cash from place to place, but largely supplant paper money. It's clear that's where the we are headed---I use cash less and less---but it's less clear that quickly converting poor societies to e-money will serve the poor today. It might be pushing on a string. As the launch report notes, most formal savings accounts are little used---perhaps one deposit and three withdrawals a month. Kenyans have been slow, at least by the blistering standard of M-PESA growth, to use their phones for banking services other than mobile transfers.Similarly, the report envisions a universal transition path in which large payers such as governments will drive the move to e-money by rerouting paychecks and welfare payments. That's smart strategy since e-money systems, like operating systems and other digital standards, need critical mass. Yet I think that millions of small players wanting to send money to each other were also fuel for the take-off of M-PESA. The success was not purely top-down.All in all, the Better Than Cash Alliance is definitely better than no Better Than Cash Alliance. I look forward to more analysis and wisdom on making e-money work and wish the Alliance well as it labors cajoles, and inspires behind the scenes.